BILL ANALYSIS



C.S.H.B. 1243
By: Smithee
04-12-95
Committee Report (Substituted)

BACKGROUND

     Currently, Texas domiciled insurers are licensed in other
states to conduct the business of insurance.  These Texas base
insurers are primarily regulated by the state of Texas, however,
they must comply with the insurance laws of the states in which
they operate.  Historically, there has been a large disparities in
solvency laws from state to state and due to a significant number
of insurance company insolvencies on a national basis, the state of
Texas has develop a set of minimum solvency standards.

PURPOSE

     As substituted, House Bill 1243 would strengthens the solvency
standards that must be met by insurers operating in the State of
Texas. 

RULEMAKING AUTHORITY

     It is the Committee's opinion that this bill does grant
rulemaking authority to the Insurance Commissioner and the
Commissioner shall adopt the rules no later than December 31, 1995
(Section 22).  Section 1 amends Article 1.39, Insurance Code,
Subsection (f) by requiring the Commissioner to adopt rules
necessary to implement this article.  Section 3 amends Article 2.20
(d), Insurance Code to permit the Commissioner to adopt rules,
regulations, and guidelines that requires any company subjected to
this article maintain excess of the minimums of capital and surplus
levels. 

     It is the Committee's opinion the following conditions apply
when the Commissioner adopts rules.  Section 4 amends Article
3.10(1), Insurance Code, to require rules adopted by the
Commissioner subsequent to September 1, 1994, apply to reinsurance
agreements entered into on or after the effective date of such
rules, and to reinsurance agreements that are amended on or after
the effective date of such rules.  Section 6 amends Article 3.60,
Insurance Code, to permit rules adopted by the Commissioner be
imposed on risk-based capital and surplus requirements.

SECTION BY SECTION ANALYSIS

SECTION 1. Surplus Debentures.

Amends Art. 1.39 (b) and adds new (e) and (f) to Art. 1.39,
Insurance Code, to provide that the Commissioner pre-approve the
form and content of surplus debentures (loans to insurers that are
not initially accounted for as liabilities.)  Requires 15 days
notice to the Commissioner of any payment or repayment of such
debentures.  A grandfather provision is provided for currently
existing debentures.  Rule-making is conferred.

SECTION 2. Deletion of Risk Based Capital Provisions. 

Amends Art. 2.02, Insurance Code, to delete current sections (b)
and (c).

SECTION 3.  Risk Based Capital for Property & Casualty Insurers. 

Amends Article 2.20 (d) and (f), Insurance Code, to apply risk
based capital requirements to certain types of property & casualty
insurers.  



SECTION 4. Accounting for Reinsurance by Life Insurers.

Amends Article 3.10 (l), Insurance Code, to strengthen currently
existing rulemaking authority for accounting for reinsurance
agreements.  A grandfather provision is provided for currently
existing reinsurance agreements.  Also, would allow the offset of
mutual debts and credits that may arise out of one or more
reinsurance agreements entered into by life insurers.   

SECTION 5. Application of Certain Solvency Requirements. 

Amends Subchapter B, Chapter 3, Insurance Code, by adding new Art.
3.27-4 to apply current risk based capital requirements and the new
"Disclosure of Material Transactions Act" to foreign or alien life
insurers that enter the US through Texas "port-of-entry" statutes. 


SECTION 6. Impairment of Capital or Surplus for Life Insurers. 

Amends Art. 3.60, Insurance Code, to clarify that no impairment of
a life insurer's surplus required by risk based capital rules shall
be permitted.

SECTION 7. Accounting for Reinsurance by Property & Casualty
Insurers. 

Amends Article 5.75-1 (n), Insurance Code, to strengthen currently
existing rulemaking authority for accounting for reinsurance
agreements. 

SECTION 8.  Title Insurers:  Disclosure of Material Transactions
Act.

Amends Section 2, Art. 9.47, Insurance Code, to apply the new
Disclosure of Material Transactions Act to title insurers.  

SECTION 9. Farm Mutuals. 

Amends Sec. 16.24 (b), Insurance Code, to delete from the list of
laws that apply to Farm Mutuals certain statutes which have been
previously repealed.

SECTION 10.    County Mutuals

Amends Sec. 17.22 (a), Insurance Code, to delete from the list of
laws that apply to County Mutuals certain statutes which have been
previously repealed.

SECTION 11.    Lloyds' Insurers:  Disclosure of Material
Transactions Act.

Amends Section 18.23(b), Insurance Code, to apply the new
Disclosure of Material Transactions Act to Lloyds' insurers.  

SECTION 12.  Reciprocal Insurers:  Disclosure of Material
Transactions Act.

Amends Section 19.12(b), Insurance Code, to apply the new
Disclosure of Material Transactions Act to reciprocal or inter-insurance exchanges.

SECTION 13.  HMO's:  Disclosure of Material Transactions Act.

Amends Section 26(i), Texas Health Maintenance Organization Act
(Article 20A.26, Insurance Code), to apply the Disclosure of
Material Transactions Act to HMO's.  

SECTION 14.  Alien Property & Casualty Insurers:  Disclosure of
Material Transactions Act.  
Amends Art. 21.44, Insurance Code, to apply the Disclosure of
Material Transactions Act to foreign or alien property and casualty
insurers that enter the US through Texas "port-of-entry" statutes;
and clarifies that current risk based capital laws apply to such
insurers.




SECTION 15.         Dividends.

Amends Section 4(c), Art. 21.49-1, Insurance Code, to redefine what
constitutes an "extraordinary" dividend that requires prior
commissioner approval (property & casualty insurers only.)  The
amendment changes the definition from one indexed to "net
investment income" to "net income". 

SECTION 16.         Disclosure of Material Transactions. 

Amends Subchapter E, Chapter 21, Insurance Code, to add new Art.
21.49-8 which provides that certain transactions of a substantive
dollar amount must be reported to the commissioner (if not
otherwise already subject to reporting.)  Under the act, no
additional regulatory approval authority is conferred.  As defined,
a material transaction entails acquisitions or dispositions of
assets if the transaction is not recurring, not in the ordinary
course of business and involves more than 5% of the insurer's
admitted assets.  Certain reinsurance transactions must also be
reported if the transaction pertains to 50% of the insurer's ceded
written premium, for property and casualty insurers, or 50% of the
insurer's total reinsurance reserve credit, for life and accident
and health insurers.

SECTION 17.  Property & Casualty Insurers Not to Retain Excess
Risks.

Amends Subchapter E, Chapter 21, Insurance Code, by adding new Art.
21.72 to codify current law prohibiting  property & casualty
insurers from retaining a single risk greater than 10% of the
insurer's statutory net worth, unless such excess risk is reinsured
in another solvent insurer.  Current law (found in Chapter 6,
Insurance Code) limits certain insurers from retaining a risk in
excess of 10% of their capital and surplus.  An Attorney General
opinion has clarified that this law has a broader application to
property and casualty insurers than a literal reading of the law
would otherwise indicate.  The standard is followed nationally; and
the change would codify what the Attorney General opinion says.

SECTION. 18.  Stipulated Premium Insurers. 

Amends Sec. 22.18, Insurance Code, to delete from the list of laws
that apply to Stipulated Premium Insurers a statute which has been
previously repealed.

SECTION 19.    Non-Profit Legal Services Insurers:  Disclosure of
Material Transactions Act.  

Amends Section 23.26(b), Insurance Code, to apply the new
Disclosure of Material Transactions Act to non-profit legal
services insurers.

SECTION 20. Insurers Providing Job Protection Insurance

Amends Art. 25.05, Insurance Code, to apply the new Disclosure of
Material Transaction Act to insurers providing job protection
insurance.

SECTION 21.    Risk Based Capital Requirements.

Provide for the risk based capital requirements adopted under
Article 21.29, be implemented in phases over a two-year period. 

SECTION. 22.  EFFECTIVE DATE. 

Provides effective date and requires the Commissioner to adopt
rules as required by the Insurance Code, not later than December
31, 1995.

SECTION 23.  EMERGENCY CLAUSE.




COMPARISON OF ORIGINAL TO SUBSTITUTE

     As substituted, H.B. 1243 would delete Section 4, 5, 16, 21,
25, 26, and 28(c) relating to risk based capital requirements for
insurers based on the National Association of Insurance
Commissioner's model act.  However, the substitute does retain
existing Texas law relating to risk based capital.  The substitute
adds clarifying language under Section 4 to require rules adopted
by the Commissioner define requirements for risk transfer in
reinsurance contracts and apply only to new agreements or to those
agreements which are modified after the effective date of the
rules.  In addition, Section 6 of the substitute amends Article
3.60, Insurance Code relating to impairment of surplus capital with
respect to falling below statutory minimums requirements.

SUMMARY OF COMMITTEE ACTION

     In accordance with House Rules, H.B. 1243 was heard in a
public hearing on February 22, 1995.  There being a quorum present,
the Chair laid out H.B. 1243 and recognized Representative Averitt
who offered a substitute to H. B. 1243.  The substitute to H.B.
1243 was not adopted.  The Chair recognized Woody Pogue with Texas
Department of Insurance as a resource witness to testify neutrally
on H.B. 1243.  The Chair recognized the following persons to
testify in support of H.B. 1243:  Fred Bosse, USAA; Ross Davidson,
USAA.

     The Chair recognized the following persons to testify in
opposition of H.B. 1243:  Will Davis, Texas Legal Reserve Officials
Association; John Abdnor, Bankers Commercial Title Insurance
Company; Carl Parker, Insurance Alliance of America; Bernie Burner,
Texas County Mutual Association; Robert P. Clines, Provident
American Insurance Company; Garland M. Lasater, Transport Life
Insurance Company; David Harris, Central United Life Insurance
Company; Mark France, Directors Investment Group; Brian Davis,
Directors Investment Group; 
James L. Young, Statesman National Life Insurance Company; Lawrence
Barnett, Christian Fidelity Life Insurance Company; Joe T. Bailey,
representing himself; David Barnett, Christian Fidelity Life
Insurance Company; Steven Camp, S.J. Camp & Company; Larry E.
Kosta, Colonial Casualty Insurance.  The Chair referred H.B. 1243
to a subcommittee to be named at a later date.

     On April 12, 1995, there being a quorum present, H.B. 1243 was
heard in a public hearing.  Since H.B. 1243 was authored by
Representative Smithee, Representative Smithee turned over the
chair\gavel to Representative Duncan.  Chairman Smithee had
previously referred H.B. 1243 to a subcommittee on February 22,
1995.  The Chair (Duncan) recalls H.B. 1243 from subcommittee
without objection.  The Chair laid out H.B. 1243 and a substitute
to H.B. 1243 and recognized Representative Smithee who explained
the difference between the substitute to H.B. 1243 and the filed
bill. 

     The Chair recognized Representative Dutton who offered
Committee amendment #1 to the substitute to H.B. 1243. 
Representative Dutton removed Committee amendment #1 from
consideration.  The Chair recognized Representative Smithee who
offered Committee amendment #2 to the substitute to H.B. 1243 and
moved the Committee adopt Committee Amendment #2.  The Chair heard
no objections and Committee amendment #2 was adopted.  The Chair
recognized Representative Smithee who offered Committee amendment
#3 to the substitute to H.B. 1243 and moved the Committee adopt
Committee Amendment #3.  The Chair heard no objections and
Committee amendment #3 was adopted.

     The Chair recognized Representative Averitt who moved the
Committee redraft the substitute to H.B. 1243 incorporating the all
adopted amendments into a complete and new substitute to H.B. 1243. 
The Chair heard no objections and the motion was adopted.

     The Chair recognized Representative Averitt who moved the
Committee report the redrafted substitute to H.B. 1243 to the full
House with the recommendation that it do pass and be printed. 
Representative Driver seconded the motion and the motion prevailed
by the following vote:  AYES (9); NAYS (0); ABSENT (0); PNV (0).